Thursday April 30 2020
A stunning Reversal from Yesterday's High
This will be written off by the bulls and Cable TV business as volatility or a normal correction in what they believe to be a bull market.
See our posts Tuesday. The morning post detailed the declining volume in the FANG stocks which has supported the terrific rally in the NASD. That is not the case.
Big Picture
The rally that began in 1932 at DJIA 42 finally ended Feb 12 at 29,276. this is what Bob Precter refers to as a Grand Supercycle Reversal. Thee virus provides the fundamental back drop with 30 M out of work in just a couple of months.
The south is hit by tornadoes and the midwest floods.
Smaller Picture
Five waves from the March 2009 low aree now complete. All of these patterns completed on February 12 bringing rallies on at mlultiple fractal levels to end simultaneously.
Short Term
Wave One down and Wave Two up are equal length at 26 trading days. Wave 3 down has likely begun.
Wave Two ended just over the 50% re trace level a typical Fibonacci level.
Those claiming this is a new bull market are wrong. if it were a bull market, volume would be expanding, it is however contracting. Consider the ETF DIA which replicates the Dow Industrials.
Volume peaked at the March 23 low and has fallen across the rally since. That is bear market behavior. Vigorous rallies, 33% in this case, happen on lower volume stair stepping up only to fail once more.
Deflation
This has launched a wave of deflation. That inflation wave for oil peaked in the summer of 2008 at 140. Successive lower peaks have warned of coming danger. That danger as re enforced by the weakness is what used to be the energy service sector, HAL is now single digits, RIG is about a buck.
www.deflation.com
Social Mood
Progressive governors (see Michigan) and Mayors (see NYC) delight in using the virus as an excuse to tell others what to do, insulated by government salaries rather than the vagaries of being shut out of what was a real job three months ago. Protests are already taking place. In responses to her license being revoked, one salon operator noted that if she can't work and goes out of business what good is the license?
And the move down is JUST GETTING STARTED! Bear markets are fueled by negative mood and politicians are producing plenty of that with 30 million already out of work.
Wave Three down will reflect the difficulty of putting Humpty Dumpty back together.
Suppose you are the manager of one of the large Vegas Casinos. Finally you are allowed to re open. Okay
how many black jack dealers do you call back-will you have to separate gamblers at the tables, six feet apart, will that double or triple the number of dealers needed - what does that do to your break even point - can you afford to turn on the lights and HVAC - Vegas is famous for its large buffets, are those even permitted anymore? Wel no matter how it is served, how much food do you fix - do we need the shuttle to the airport? do you call back the entertainers, if so how many shows and what days
See what I mean
Oil
Oil prices have floated up to 17-18. But that won't make anyone in the business any money. Valero just lost $1.9 billion in the first quarter. I doubt oil can be turned profitably into gasoline with demand so low, ie it costs more to refine than can e recovered in the sales price.
Welcome to deflation.
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